As Fleet Size Grows, Navy Aims to Boost Energy Efficiency

Event Description

Secretary of the Navy Raymond Mabus offers his thoughts on the service's current challenges and future trajectory in a conversation with R. Jeffrey Smith of the Center for Public Integrity. Mabus details the Navy's efforts to keep costs under control—both in terms of its procurement of new ships as well as in the cost savings realized through alternative fuels and energy efficiency programs. He comments on the service's relationship with rising naval powers such as China as well as its efforts to stay ahead of technological curve with its investment in the new littoral combat ship. Mabus also discusses the Navy's efforts to recruit and retain a more diverse workforce—particularly women—and to respond effectively to the problem of sexual assault within the ranks.

Event Highlights

Raymond Mabus on the Navy's decision to invest in alternative fuels and greater energy efficiency:

"Fuel is and can be used as a weapon. You only have to look at headlines today to see how energy and oil and gas are being used as weapons. For that reason, I have a goal—and we're going to reach it—that by no later than 2020, at least half of all naval energy, afloat and ashore, will come from non-fossil fuel sources, because we simply do not want that weapon turned against us."

Raymond Mabus on the Navy's efforts to address the high incidence of sexual assault in the armed services:

"We have tried to focus very precisely on things like sexual assault, to make sure that leadership and sailors and Marines understand this is a crime, this is an attack—this is an attack on a shipmate. If somebody was walking around taking random shots at people on one of our bases, we'd do something about it. It's exactly the same thing, and we have to get this right."

Raymond Mabus on the Navy's relationship with China:

"I went to China in December of '12 as secretary. And the complaint then was what the complaint always is. You've got to stop these reconnaissance flights. You've got to stop your intelligence gathering by either air or sea. And my response was, well, you know, you obviously think that these are good things, because the last RIMPAC in 2012, you sent an intelligence ship to shadow us and to gather intel. And our response was to invite you to the next one. Not to try to keep you out, but to invite you. And that's our preferred path, is to engage them, to make sure that they know how we operate and we know how they operate, which will lower the chance of misunderstanding, to get a code of conduct for the area, so that you know, you don't have these close calls. You don't have things that could escalate out of control."

SMITH: Hi. Welcome to the Council on Foreign Relations. Ray Mabus is a University of Mississippi graduate, Harvard lawyer, and from 1982 to 1992, he was Mississippi's governor, serving two terms. He was just telling me a moment ago he got that job after serving as the state auditor for four years, in which he put a third of the Mississippi county officials into jail.

(LAUGHTER)

Good man to bring to Washington. After that, he was the U.S. ambassador to Saudi Arabia, where his huge political skills were even in higher demand, I dare say. He's also a former officer aboard a Navy light cruiser named the USS Little Rock, which probably helped endear him to Bill Clinton prior to that ambassadorial appointment.

One more thing worth mentioning. His home state is the site of a giant factory called Ingalls Shipbuilding on the banks of the Pascagoula River, where about 11,000 people earn more than $2 billion annually making and repairing U.S. surface vessels for the Navy.

With that, Mr. Mabus is going to—Secretary Mabus is going to make some opening remarks, and then we'll have a short discussion here. This conversation is all on-the-record. I hope you've all silenced your phones. I look forward to a good conversation and question period will come after the conversation.

MABUS: So thank you so much. I'm very glad to be with you.

What the Navy and Marine Corps uniquely bring to the country is presence, the ability to be not just in the right place at the right time, but the right place all the time, the ability to give our leaders options to do whatever the country requires, options from high-end combat to irregular warfare to humanitarian assistance and disaster relief to partnership-building.

The way I've tried to organize my thinking about how we provide that presence, how we give the commander-in-chief those options is by concentrating on four things that also all begin with P—people, platforms, power, and partnerships. And I want to talk about each one of those very briefly in reverse order.

No matter how big, no matter how capable, no one country can do everything. And we have to rely on partners worldwide. The more interoperable we are, the more we exercise together, the more we operate together, the better we will be when a crisis comes. There's a saying that you can surge people, you can surge equipment. What you cannot surge is trust. You have to have that trust.

And it's one of the reasons I travel so much. By the end of this week, I will have been 899,922 miles. But who's counting?

(LAUGHTER)

To 120 different countries and territories. And I do it for two reasons. One is to see sailors and Marines forward deployed, to visit with them where they are, to listen to their concerns, listen to what issues they have, and to talk to them about why they're there, why this presence is important.

But the second reason is to build those partnerships, to work with our friends and our neighbors and our allies around the world. And building those alliances, building those cooperative engagements is one of the key tenets of our national defense strategy and also it's almost a description of the United States Navy and Marine Corps.

Second is power. And by power, I mean energy, how we fuel our naval ships, aircraft, and bases. Fuel is and can be used as a weapon. You only have to look at headlines today to see how energy and oil and gas are being used as weapons. For that reason, I have a goal—and we're going to reach it—that by no later than 2020, at least half of all naval energy, afloat and ashore, will come from non-fossil fuel sources, because we simply do not want that weapon turned against us.

There are two reasons. One is the use of energy as a weapon, the use of energy as a crisis manipulator, but the second is just the global nature of oil and gas, because even if we could—and we probably will—be able to produce all the oil and gas we need internally, and even if we couldn't in the military in point of fact we'd go to the front of the line no matter what in times of national emergency, but the prices—because it is a global commodity—the prices are set worldwide.

And every time there's a crisis somewhere—pick a place, Libya, Syria, anywhere, traders in oil and gas put what is known as a security premium, usually about $10 a barrel. Every time the price of oil goes up $1 a barrel it costs the Navy and Marine Corps $30 million in additional operating costs.

So in the last few years, we've been presented with multi-billion-dollar bills, unbudgeted, bills for fuel price increases. We simply have to have a more stably priced, homegrown source of energy to power our fleet and to power our bases.

Third is platforms. Quantity has a quality all its own. On 9/11, 2001, the U.S. Navy had 316 ships. By 2008, after one of the great military buildups in American history, we were down to 278 ships, and the fleet was shrinking. We had 49,000 fewer sailors that we'd had seven years before.

In the five years before I became secretary, the Navy put 27 ships under contract, not enough to halt the slide in the size of the fleet and not enough to protect the industrial base that Jeff mentioned in places like Pascagoula.

I've been secretary for a little more than five years. In the first five years I've been secretary, we have put 70 ships under contract. We will grow the fleet to 309 ships by the end of this decade and to 314 ships by the beginning of the 2020s, and we will keep it there.

You have to have these platforms. You have to have these big gray hulls on the horizon to deter potential conflicts, to reassure allies, to do all the things that presence requires. You have to grow the fleet for us to simultaneously rebalance to the Pacific, but also not ignore other parts of the world.

"Fuel is and can be used as a weapon."

We are—we are doing that. And we're not just building one type of ship. In those 70 ships, we're building two DDGs, two destroyers a year, we're building two Virginia-class attack submarines a year, we're building to 33 amphibious ships, which is what the Marines need for their capabilities.

So this is a balanced, well-thought-out fleet. And we've done this just by putting in some pretty basic business principles. More competition. Stable designs. Mature technology. So we've quit building ships while we design them. If we come across a new gee-whiz technology, we wait until the next block of ships or aircraft to put them on. We try to be absolutely transparent in the number and types of vessels and aircraft that we will need, so that in return industry can do the infrastructure that's necessary, so in return the industry can do the job training that is necessary, and if we keep designs stable and we keep technology mature, every ship or every aircraft of the same class should cost less than the preceding one. Those costs should go down because there ought to be a learning curve.

And, finally, people. We have the finest force we've ever had and I think the finest naval force in history in the Navy and in the Marines. We push responsibility down further and faster than any organization you will ever see. The Marines have a concept called the strategic corporal, which says that if you're a noncommissioned officer in the Marines, a corporal, you ought to know not only your job, but you ought to know what your squad's job is, you ought to know what your organization's job is, you ought to know the history of where you are and why you are there and what your purpose is in being there.

We have put a good bit of stress on this force in the last few years. Our deployment times have gone up. They're getting longer. And they're getting more irregular. We're trying to meet some of that. We're trying to do it in several ways. One is, we've come up with something called the optimized fleet response plan, which is a Pentagon-ese way of saying we're going to try to be more regular in the way we deploy our ships and our people. And what it does is it takes a 36-month period and says, here's when you'll be in maintenance, here's when you'll be in training, here's when you'll deploy, and here's when you come back and will remain capable to be a surge ship. Now, the world gets a vote in all that. But at least it will set a notional framework of how to do this.

Next, we've established a program called 21st Century Sailor and Marine, which puts together all the programs that have been stovepiped before to deal with the help and the resilience of our force. So it puts things as disparate as diet and exercise and physical fitness with family programs for readiness. When a family member is deployed, how do the children back home—how do the spouse back home or if both spouses are deployed, how do we deal with that? What are available to—to our sailors and Marines?

To things like suicide prevention and sexual assault, we have tried to focus very precisely on things like sexual assault, to make sure that leadership and sailors and Marines understand this is a crime, this is an attack, this is an attack on a shipmate. If somebody was walking around taking random shots at people on one our bases, we'd do something about it. It's exactly the same thing, and we have to get this right or we will risk undoing the very hard and very good work of a lot of people.

And finally on people, one of the things that I am concerned about and that we are doing a lot of work on now is we simply don't have enough women in either the Navy or the Marine Corps. The Navy has about 18 percent; the Marine Corps has about 8 percent. And it's not simply getting more women in. It's because it makes us a better force. A more diverse force is a stronger force, and a force that defends a democracy ought to reflect that democracy.

It's one of the reasons that I brought NROTC back to Harvard, Yale, Princeton, and Columbia, and it's also the reason that we put an NROTC—you know, a Naval ROTC unit—at Rutgers and Arizona State, because they're some of the most diverse campuses that we have.

In the book, "The Wisdom of Crowds," it talks about how the more viewpoints you have, the more life experience you have, the more relevant, but different experiences that you have, your force becomes stronger. And we've certainly seen that since we've integrated the force in the late '40s, since we fully integrated women into the Navy, and the Marine Corps in the late '80, and we've seen it in our submarine forces, which I was privileged to make the decision to put women in our submarines four years ago.

So it's also the reason that I'm paying a lot of attention to things like uniforms. Women wear different uniforms. No other group does. If we ask another group to where a different uniform, we'd be in huge trouble. And that's why we're making uniforms actually meet that term, uniform—that's the whole purpose of it—so that when you look out, you don't see male Marines and female Marines or male sailors and female sailors. You see American sailors. You see American Marines. That's the purpose of doing this.

And we're also trying to be a lot more flexible, and we're coming up with a list of actions we can take and a list of actions that we're going to have to have Congress's help on, to be more flexible in how we manage people, how we—what a career looks like. We've got something now called a pilot career intermission program, where you can take up to three years off with no harm to your career and come back in. First person that did it was a woman who took time off to have a family, came back in, and on her first promotion board, she was promoted to captain and given major command.

"If somebody was walking around taking random shots at people on one our bases, we'd do something about it. It's exactly the same thing, and we have to get this right."

But even with that, people don't trust us. Partly they don't trust us because it's got the word "pilot" in front of it. They don't think that it's going to be there. They don't think that, well, if I take this time off, are they really serious that it's not going to hurt me?

The example I use, the commandant of the Marine Corps took more than two years off from the Marine Corps mid-career. He went and flew airplanes for an airline. He did pretty well when he came back. But he even says that he was at a great disadvantage because his peers during the time he had been gone had done two deployments. And we penalized people who come out of school, whether at the Naval Academy or ROTC, and do incredibly well academically. So if you get a Rhodes scholarship coming out of one of these places and you take two years and go to England, you're going to be behind your peers when you show back up. You're going to—they will already have their wings as pilots. They will already have their dolphins as submariners. They will already have their surface warfare pin.

And so we're penalizing some of our best. And we simply got to figure out ways that we can keep not only women, because we keep women at a lower percentage than anybody else, but that we keep all these highly skilled, highly talented people in by making these military careers not less rigorous—because if you join the Navy and Marine, you're going to sea, you're going to deploy—but make them more flexible, make them easier to balance family and work, and make them so that we can keep some of these.

I will close by saying that I will make an argument—and I think it's a pretty good one—that the world economy is doing as well as it is because of navies, and primarily because of the United States Navy. Ninety-five percent of all commerce, all global commerce travels by water. More than 90 percent of all data, whether telecommunications or data that runs our financial institutions, goes under the sea. And because the American Navy and the American Marine Corps have kept those sea lanes open for 70 years, have kept it open for everybody, not just ships flying our flag, but everybody engaged in peaceful commerce, the global economy, despite its ups and downs, is running as smoothly as it is because of that presence, and that's what we have to maintain, that forward presence to make sure we are there, to make sure that we are where we need to be when we need to be there.

Thank you.

(APPLAUSE)

SMITH: And we're just going to chat for a bit. And I should say, to get my conflicts out of the way at the beginning, I'm probably predisposed to like the Navy and its leaders. My father was briefly a gunnery officer about a light missile cruiser like the Little Rock in the original Asia Pacific pivot a few years back. And I spent my toddlerhood pushing little gray ships around my bedroom floor.

Over the years, as a reporter at the Washington Post, I found the Navy's public affairs shop were honest and responsive than those of the other services. I noticed a report last week that among colleges with the highest starting salaries for graduates, the U.S. Naval Academy was right at the top. It's hard, dangerous and expensive work they do. Two F-18s crashed last week into the Pacific, and it cost them about $61 million apiece. No one who's watched the movie—no one who's watched the movie "Captain Phillips" or read into the details of the Osama bin Laden takedown can feel anything but pride about the Navy and its personnel.

All this said, I can't escape the conclusion that in recent years the Navy's headed down some bad pathways, particularly in its procurement of boats and services. We've all read about the Glenn Marine Group purchasing scandal and everything the Navy has done to put it behind it.

But criticism persists that the Navy is having enormous trouble making smart decisions about its needs for the future, exemplified by the littoral combat ship fleet that the Navy leaders still support, even though Secretary of Defense Hagel has noticeably cooled on it.

When the USS Freedom was immobilized in the South China Sea for a while last year, it was to many an embarrassing symbol of how the Navy is not as well prepared for the tasks of the future as it once was. So I'd just like to collect your comment on that.

MABUS: Other than that, Mrs. Lincoln?

(LAUGHTER)

Well, let me take those in order, Glenn Defense Marine. I said at the time I would rather get some bad headlines than let bad people get away. The only reason you or anyone else knows about Glenn Defense Marine is because we conduct—because they went across some tripwires we had set up in 2010. It raised questions about their activities.

We instituted an investigation with NCIS that went on for three years with no leaks. And during the course of that investigation, we found out that an NCIS agent was helping and was funneling information to Glenn Defense Marine...

SMITH: About the investigation.

MABUS: About the investigation. We fooled him. We had no leaks. And we were able to have the head of Glenn Defense Marine come to the U.S. for a meeting, where he was arrested. And alone among the services, when we relieve people, when we do investigations, we announce it. We announced the result of all our courts martial that result in—we put the names in if they result in guilty pleas or guilty findings. We don't put the names in if they're acquittals, but we do say, "Here's what the charge was, and here was the finding."

So actually I think GDMA for all the bad headlines was an example of how we do catch bad actors. You can't stop everybody. You can have all the ethics courses and lectures in the world, but if you don't know it's wrong to steal, if you don't know it's wrong to take a bribe, you missed something at home. And probably those ethics lectures aren't going to help.

So you set up the ethics stuff and try to make sure that you do that, but on the other hand, you set up stuff to catch people, because it's always a race between people who are trying to figure out a way around the law and the rules and those that are trying to enforce it. So I think we did a pretty good job enforcing it there.

SMITH: Maybe you could talk a little bit about the LCS. You talked about the—your new procurement strategy is having more competition, stable design, and more mature technology. The LCS is the counterpoint, I think, in the view...

MABUS: Actually, I think it's a good example of those things.

SMITH: All right.

MABUS: And I'll give you a whole bunch of stuff here. When I took office, we had—we've got two versions, one made in Austal, one made by Austal in Mobile and made by Lockheed in Marinette Shipbuilding in Marinette, Wisconsin.

When I took office, we had one version of each in the water, one version of each being built, and they were costing north of $750 million apiece. Now, they were first of their class. They were experimental ships when they were built. But the Congress had been told they were going to cost $220 million. There's a little gap between $750 million and $220 million.

One of my first acts was to bid out more. And when the bids came in, they were even higher than the ships that were being built. So I made the decision that even though we wanted both versions, they brought different strengths that we couldn't afford it. So we pulled the RFP, we put a different one out, and we said we're going to build 10 ships over 5 years to the winner of the competition. And those two yards are competing against each other. And we're going to base it mainly on price.

So over the—and then you're going to give a technical package and we're going to bid that out to a second shipyard to keep competition in, and we're going to give that shipyard nine ships. So over the course of the year, the bids came down about 40 percent. I still don't know who won. Went back to Congress and said, we'd like to buy both versions. Congress said OK. We bought 20 ships instead of 19 and we saved $3 billion on that.

The ships coming off the line in this multi-year contract, the last ones, the hulls cost about $350 million. So we have—we have driven that cost down. And if you add the mission packages to the cost of the hull, the cost that Congress was told, $220 million was the hull, we thought the mission packages then in 2002 were going to be far more expensive. They're costing about the same, a little less than $500 million average price, as Congress was told then without accounting for inflation. So I think that's not bad.

Second, we deployed, as you pointed out, Freedom, and the first ship of its class ever built. We deployed her early. We sent her to Singapore. And she did have some mechanical issues. But what nobody reported on, she was available for service at higher than average rate of the other ships in the Pacific fleet. Ships have mechanical problems. So the Freedom was available to go when they needed to.

Third, we sent Independence—LCS 2—to RIMPAC, Rim of the Pacific, this year. We gave them two months' notice. They were testing the countermine package. We told them to change it out and put the counter-surface package on. They did it in 96 hours, which is what we'd always said we could do, but we'd never tried it under real circumstances.

They go to Hawaii, and they get there with a third of their fuel left at higher speeds than anyone else transited. And everybody thought it was going to burn way more fuel than that. And it participated in a gunfire exercise that, did visit board search and seizure exercises with our special forces, it played the aggressor ship against four other ships, two U.S., two non-U.S, and they couldn't find it for a long time. Their participation in RIMPAC was highly successful.

Now—and the fleet—the fleet loves the LCS. What the secretary of defense tasked me to do back in February was to take a look at the program, to look at lethality, to look at survivability, to—but to do so taking into account budget and schedule. And the options were to come out with—keep building the LCS exactly the way we're building it, build a modified LCS, or build a new kind of ship, either from an existing design or clean sheet of paper.

We have not briefed the secretary of defense yet on the results of that, but the one thing I will say, we set up a thing called the small surface combatant task force, who looked at every option possible in a very rigorous way. When we make our recommendation, I don't think there can be any doubt about the process, about what we need in terms of these ships.

We have a demonstrated need for 52 small surface combatants, regardless of what they are. We're going to build 32 of the LCS, this variety. So the question is, what do the next 20 look like?

And the last thing I'll say is, we do this for every ship. We're about to start building our fourth flight of destroyers. Same names, DDG 51, but fourth flight. And as one of our admirals told me, he said that the destroyer today, he commanded a flight one. He says there's no comparison in those ships.

We can't test naval ships the way you test aircraft, because they're just too expensive. They just take too long to build, so you can't build test platforms. And so what you do is as you build them, you send them out in operation, you see what they need, and you make changes accordingly.

SMITH: So one of the biggest questions about the LCS has been the survivability, and it speaks to kind of a broader survivability question I want to ask you. A second and related complaint, beyond this question about whether the Navy's as well prepared for the tasks of the future as it once was, is that the Navy's having trouble dealing with new ship-killing technologies, like the Chinese DF-21, which are cheaper, more widespread, and have a larger footprint than they used to.

Are you confident that surface navies are going to be able to fend off attacks from smaller countries or from, you know, non-national sources 35 years from now as easily as they can now, since that's the shipbuilding window that you have to plan in?

MABUS: I think a short answer is yes, if we keep looking at those evolving threats, if we keep our technological edge, which—we have two edges. One is technological. We've always had the greatest technology. And two is people.

But we have to keep the research and development, we have to keep the science and technology going. We have to make sure that we don't fall behind in things like unmanned systems. And you're seeing this in warfare everywhere, this asymmetrical warfare. We saw it in Iraq. You saw it in Afghanistan. And you're seeing it on the high seas with the fast boats. So that's the kind of warfare that you're going to have to fight today.

But you don't know what that warfare is going to be. You don't have a clue. I mean, we do a thing called a Quadrennial Defense Review. By its very name, it's every four years. It's right after a presidential election. And a lot of smart people work on it, and they're very well-thought-out reports.

Now, if you'd have done one in '89 right before the wall came down, you'd have been 100 percent wrong about the threats we were going to face. If you'd have done one September 10, 2001, you'd have been about 90 percent wrong about the threats you're going to face. If you'd have done one—which we did last year—in terms of the threats we're going to face right now, you would have been at least as wrong as right.

So our job is to make sure that that technology gets developed. Our job is to make sure that our platforms are flexible so that they can take on whatever threats are coming in, to make sure that our training is flexible, make sure that we don't have just doctrinaire people doing this, that we...

SMITH: Can I interrupt?

MABUS: ... have people who can make decisions.

SMITH: What did you discover in the last year that—that made that report only 50 percent correct?

MABUS: Well, I mean, I was talking about the headlines from the Ukraine, from Iraq.

SMITH: Not a naval threat.

MABUS: No. I mean, we—again, it's always going to be a race. It's always going to be a race between offense and defense, because weapons that are designed to...

(CROSSTALK)

MABUS: ... weapons that are designed to not to.

SMITH: This is the challenge...

MABUS: But I'd rather be in our place than in anybody else's place right now.

SMITH: The challenge in Washington, though, because you're asking lawmakers to pony up a lot of money for surface ships with this kind of uncertainty about the survivability of surface ships against this wave of new threats that are coming, that are cheap, that are proliferating.

MABUS: Well, I think—I think, frankly, that's always been the case, because you were asking lawmakers to pony up a lot of money to counter the Soviets and the threats that they posed, which were just as equally—the descriptions were equally fearsome and concerning, and on back through history.

But, you know, survivability has got a lot of different aspects to it. One is, how likely are you to be hit in terms of stealth or speed or maneuverability? Second is, what do you mean by survivability? Is it getting hit and being able to get out with the crew and go back and be repaired? Or is it to be hit and keep fighting? Because we have different degrees of survivability that's written into our survivability standards.

But we also don't send ships out by themselves much, particularly not in war. You know, and I think that's one of the issues with LCS. You wouldn't have just an LCS out there by itself. It's going to be part of a strike group. And part of the things it did at RIMPAC was this LCS did the plane guard coordination for all the ships around the carrier, first time it had ever been done. They did a great job.

SMITH: Let me ask you one other quick budget question, and then we'll open it up to the audience. You and other Navy leaders have told Congress this year there isn't enough money in the budget to meet your two key objectives, recapitalizing the surface fleet and building as many as 12 new nuclear-armed submarines over the next two decades.

So the Navy has essentially been asking for its own special overseas contingency operations account, which would fund just submarines. Now, when Jim Cartwright, Ash Carter and Bob Gates were running things, they said Navy leaders must have been smoking something to put forward a proposal like that.

But those guys are gone, and now it looks like something like a national sea-based deterrent fund might pass the Congress either late this year or maybe next year. And I'm wondering if this sends a bad precedent. I mean, what's to stop the Air Force, for example, from creating a new national air base deterrent fund for its new strategic bomber program, which is probably going to be unaffordable, alongside the trillion-dollar F-35? And also is there a way around this? Why can't the Navy build just eight new submarines with more missiles on each one? Can you bring us up to date on where this stands?

MABUS: Yes, and you're absolutely right that I in testimony, the CNO in testimony have said that, that you've got to have this national conversation, you've got to have a debate over how we pay for this, because these subs start being built in 2021. The first one will become operational in 2028, but we are working on them now. We're doing the engineering now. We're doing the R&D now. And it's a multi-billion-dollar bill even today to do this.

We are building fewer than the Ohio-class, 14 Ohio-class, we're planning to build 12 of its replacement. The reason we can build fewer is the Ohio-class had to come in and be refueled midlife. These are life of the hull reactors.

But the main reason that we said you've got to have this debate, you've got to have a conversation about this is that it will take half of our normal shipbuilding budget, every year for a dozen years, to build these...

SMITH: That's the submarines.

MABUS: Ballistic missile submarines. It will—it has the potential to gut the rest of our shipbuilding programs or something else, because I sort of reject the notion that the only way you pay for a ship is to take it out of another ship, but you've got to take it from somewhere.

And this is a national program. This is a—this is a national strategic deterrence. I don't think anybody wants our Navy to quit building attack submarines or to build many fewer of them or to quit building our surface fleet or to build many fewer of them.

And so either—one of two things has to happen. Either you're going to have to view it as a national program or you're just going to have to plus up Navy shipbuilding funds if you want to—if you want to do both missions. That's the hard math of it. And we're there today, because we are spending several billion dollars over the next five years before we even start building these things in 2021.

SMITH: Let me leave it there. You may want to follow up on that, but I'll open it up to the audience now and bring some questions in. Yes, please, right here, please.

QUESTION: Thank you very much for your talk today.

SMITH: Please wait until the microphone comes over.

QUESTION: Thanks very much for your talk today.

SMITH: And give your name and affiliation, also.

QUESTION: Henry Nuzum, SEACOR Holdings. I wanted to build a bit on the DF-21 question. I'm interested in your—a bit more detail on your reflections on the build-up of the Chinese conventional ballistic missile force, and particular in three areas, the impact on the balance of forces in the Pacific, the impact on our acquisition, not only systems, but vessels and fixed assets, and, finally, does the U.S. need a similar swift deep strike capability?

MABUS: Well, in terms of our assets to the Pacific, we're moving as part of the rebalance more assets to the Pacific. Now, we're doing this in the context of the fleet's growing, so we're going to have—we've got now 57 percent, 58 percent of our fleet in the Pacific. We'll have 60 percent by 2020. It's our most modern platforms that are going there. We're going to put another amphibious ready group, for example, there. We're going to put more surface ships in Japan forward deployed. We're going to have four LCS's forward deployed in Singapore, where they'll remain over an extended period of time, and we'll have the crews fall in on them.

And so our job in terms of maintaining presence and freedom of the seas and freedom of navigation is to be everywhere in the Western Pacific. So that's our acquisition strategy to do that.

The CNO has talked about the threats that particularly our carriers face and the—what he called the kill chain, and that what we have to do is break that kill chain at some point. The kill chain has go to work 100 percent of the time to get us. And naval vessels are by their nature—they're not going to be in the same place when you shoot that when it gets there.

And we're clearly looking at both offensive and defensive technologies. And I think that's all I'm comfortable saying about what we're doing.

SMITH: Take a question from the front row here, please.

QUESTION: Hi. Thank you, Mr. Secretary. Alan Topol from Covington & Burling. Question's this. Could you please comment on the Chinese naval expansion, how their trajectory for shipbuilding is increasing, and how it compares with ours, and at what point in the future you see some kind of a parity between the two?

MABUS: They are clearly expanding their navy with modern platforms. They're building modern surface ships. They're building model both nuclear and non-nuclear submarines. They're engaging in more complex exercises, as we go forward.

They have a very large fleet right now, but a lot of the ships are old—they're not very capable. The new ones that they're building seem to be pretty capable, pretty capable ships. What we want is for them to accept the responsibilities of a nation their size and with their capabilities, and as those capabilities grow, to be a part of maintaining freedom of navigation, to be a part of freedom of the seas, to be a part of humanitarian assistance and disaster relief.

I went to China in December of '12 as secretary. And the complaint then was what the complaint always is. You've got to stop these reconnaissance flights. You've got to stop your intelligence gathering by either air or sea. And my response was, well, you know, you obviously think that these are good things, because the last RIMPAC in 2012, you sent an intelligence ship to shadow us and to gather intel. And our response was to invite you to the next one, not to try to keep you out, but to invite you.

And that's what—that's the—that's our preferred path, is to engage them, to make sure that they know how we operate and we know how they operate, which will lower the chance of misunderstanding, to get a code of conduct for the area, so that you know, you don't have these close calls. You don't have things that could escalate out of control.

And we have also been very clear that while we don't take a national position on territorial disputes, that we do honor our treaty commitments and that we are absolutely opposed to anyone trying to get those territorial—to solve those territorial disputes by either force or by intimidation, and that we plan to be a presence in the Western Pacific for at least as long, again, as we have been before.

SMITH: I'll take a question over here, please.

QUESTION: I'm Ruth Greenspan Bell from the Woodrow Wilson International Center for Scholars. I don't know if this is working. Can you talk a little bit about how you connect your construction objectives and your efficiency objectives? You edged into this a little bit with one of the discussions, but I'm curious, because, obviously, once you have infrastructure in place, it's that much harder to make it efficient, you know, to kind of thing from the beginning of the process, and...

MABUS: Well, the way—I'll give you two quick examples. The way we've tried to do it on both ships and aircraft is to just put very basic business practices, try to compete as much as we can, do firm fixed-price contracts, do multi-years when you can, be transparent as to what's coming for industry.

But drive hard bargains. Drive very hard bargains. I mean, my father was maybe the cheapest human that's ever lived. And he thought it was a compliment to be called cheap.

SMITH: He ran a hardware store.

MABUS: He did. He was born in 1901, so he lived through the depression. He saved $0.70 out of every dollar he ever made. And he never borrowed a penny of money. But I'm his son. And I'm cheap. And I think part of my responsibility is to drive a hard bargain on behalf of taxpayers.

"That's our preferred path, is to engage [China], to make sure that they know how we operate and we know how they operate, which will lower the chance of misunderstanding, to get a code of conduct for the area, so that you know, you don't have these close calls."

Now, the example I was going to give is we've got two yards, Pascagoula in Mississippi, in my home state, largest single employer, and Bath, Maine, largest single employer in Maine, which build destroyers. So there's never really been competition there.

And so—because you want both of them open. You want to have two yards. So instead of—they were just taking them as allocations. Everybody get—you know, each one get one, and the prices were just going up. So instead of bidding out two ships, we bid out three, and we said the low bid gets the third ship. Oh, and by the way, the difference in the high bid and the low bid comes out of the high bid's profit.

One shipyard just crushed the other one in that initial competition, got the second ship. The other one really didn't make much money. The next year, we bid out nine ships as part of a multi-year. Did the same thing, low bid gets the extra ship. The fee comes—the difference in the high bid and the low bid comes out of the high bid's fee. The other shipyard crushed, crushed them.

So—and, finally, it's easy to cut platforms, ships, aircraft, things like that. They're visible. You know how much they cost, this kind of thing. It's way harder to cut stuff like contracts for personal services.

QUESTION: I should have been clearer. On energy efficiency.

MABUS: Oh, energy efficiency. I'm sorry. Energy efficiency. We're doing two things on energy. One is changing the types of energy we use, so we're going to on bases to wind, solar, geothermal, hydrothermal. At sea, we're going to biofuels. We've already certified all our aircraft, all our ships, and it's becoming the new normal. We're just buying biofuels now. It's being put in the normal supply chain. Aircraft don't know the difference; ships don't know the difference. It's got to be a drop in fuel.

On the efficiency side, though, where we're doing a lot and an equal amount of work onboard ships, we're doing things like changing out the lights to LEDs. That saves 2 percent or 3 percent of the entire energy the ship uses. And it's brighter. And you don't have to change them as often.

We're putting stern flaps on. We're putting—we're doing voyage planning, which instead of just telling a commanding officer go from San Diego to Pearl, you know, follow the currents, follow the wind, basically going back a couple of hundred years in terms of how you plan voyages.

On shore, we're doing energy savings contracts, which are if you'll come up with savings, if builders or contractors will come up with savings for them, we'll share them with them, but they have to tell us how much they're going to be and we'll tell them what percentage they get to keep out of that.

SMITH: Your critics, including Senator Inhofe, who happens to be from an oil-producing state, just by coincidence, would say that you're investing foolishly in technologies that won't be economically sound for a long time. So my question is, you know, why do you think it's hard for some lawmakers who've been critics of this program, the Navy's participation in it in particular, other that these financial ties, for lawmakers to see the national security implications of dependence on fossil fuels? It's still an amazingly hard sell in Washington, and I'm curious to know why you think that's so.

MABUS: Well, first, in 2012, a provision made it through Senate Armed Services because a couple of folks were gone or just weren't there when—they were doing other important things, but they weren't there when the vote came...

SMITH: It was a well-timed vote.

MABUS: ... that would have basically shut down particularly the biofuel part of this. When it came up on the floor of the Senate, we got 62 votes to remove that. It was the first amendment offered. It was the first one taken up. And out of the 62, 12 were Republicans. So it's not that hard a sell, I think.

The second thing, in terms of Senator Inhofe—and I've told him this—when we bought the biofuels, it was an Oklahoma company that we—and the last thing I'll say is that—as you've pointed out, I was ambassador to Saudi Arabia. The old Saudi oil minister, Zaki Yamani, very famously said, "The Stone Age didn't end because we ran out of stones. It ended because we figured out something better." I think the same thing's going to be true here.

SMITH: We'll take just a few more questions. We're kind of running short on questions, so let me take one more now, and then I'll collect maybe—if you give a short reply, I'll collect one or two more after that. Please, next, yes.

MABUS: I can't promise a short...

QUESTION: Andrew Shapiro, Beacon Global Strategies. Navy leaders have testified that force structure doesn't need to increase, despite the additional ships, because fewer sailors are needed on more modern ships. Have you—what is the current Navy thinking about the potential for unmanned ships? And is there ever a point where you could see unmanned ships playing a significant role in the Navy?

MABUS: Well, force structure is going to stay pretty constant. Even though we're using fewer people, we're getting more ships, so the Navy is going to stay pretty constant over the next at least five years.

Second, we're the only service that does unmanned in air, surface and sub-surface. I think that in all three of those realms, unmanned are going to become more and more important now. How that comes about, what they look like, what types of things—but we're already testing unmanned surface things and unmanned sub-surface and obviously unmanned air.

And so I think this is one of those waves of the future that you cannot afford technologically to fall behind on.

SMITH: Let me take—if you have your hand up, we'll take a couple of questions all at once. Please. Mitzi?

QUESTION: I'm Mitzi Wertheim with the Naval Postgraduate School. I'm going to ask a very different question. I'm going to ask about time and efficiency of the part of the people who work for the Navy. The Internet now takes up a lot of our time. I've looked at so many of the studies, and I come to this as a taxpayer, right? I look at all the studies that we do, and generally they have sort of a summary in the beginning, most of it is about the technology, and then sort of a conclusion at the end.

SMITH: Can you make this a quick question?

QUESTION: Yeah, what I want is, I want to get the beginning of these studies to tell, what were the new learnings? When I came to the Navy 37 years ago, all of flag officers had a writer who would take these 70- or 80-page reports and get it down to something that the leadership could read without having to spend hours. And this is all about a different way of learning.

And the National Intelligence Council has done this in a brilliant way, so it seems to me we ought to be doing that, as well.

SMITH: Hang on one second. Let me get...

MABUS: OK.

QUESTION: How do we make it happen?

SMITH: And can you ask a question, please, also?

QUESTION: OK, I'll just stay seated. Welcome. Thank you very much. That was an excellent presentation. I'd like to talk just a moment about...

(CROSSTALK)

QUESTION: I'd like you to talk a moment ago—you are also a very fine diplomat—you've worked very hard on building and maintaining alliances. You've got naval air now flying against a force in the Middle East that's being actively supported, in effect, by a very important ally, Turkey, by, first of all, facilitating the arrival of NATO jihadis into Syria, and secondly by—we learned this weekend—selling ISIL's oil.

This is a relationship that obviously needs a lot more work right now and could impact possibly on what your forces are doing in the region. Could you discuss that in this forum, as much as you can?

SMITH: Any other questions to bring up? Yeah, well, let's take one more, and then you can answer both these, and then we'll call it quits.

QUESTION: My name is Isa Broli (ph). I'm the charge d'affaires of Djibouti. The Navy is in Djibouti, and they did a good job in piracy in Somalia. The question is that—about the new renewable energy, is there any program to help like Djibouti for the transfer of technology?

MABUS: OK, very quickly, I agree with you. I would take it one step further. I don't think we need quite as many studies. I think we need a lot more acts. And I'd also like those studies to be written in English, because some of them, I'm unsure what the words are or what the language is.

(LAUGHTER)

And we're working on that, working on it very hard. And flag officers still have those flag writers that do that.

I'll go back to my—what I said in the very beginning, Frances, and that is, our—my job and the Navy's job is to give the president options. And the great advantage that naval forces give is that we don't take up anybody else's soil. We don't have to have support by anybody else. We can go and we bring everything we need. Only the Marines say we take our gun with us, and we can stay for a very, very long time in international waters.

So you—you've got to build these partnerships. You've got to build these things. But from an operational standpoint, you impinge on nobody's sovereign territory. That decision never has to be made. You're taking off from American soil, and you're coming back to American territory.

And I've just been in Djibouti for my second visit there. And it's one of the things I talked about in Djibouti, because the sun does shine in Djibouti and the wind does blow in Djibouti. And it—one of the things I've asked my folks in the Navy is, what can we do on alternative energy that will not only give us the power we need on our base, but also help employ Djiboutians on that base and perhaps create a new energy economy in Djibouti.

SMITH: With that, I'm going to conclude the session and say thank you very much for all your questions. Mr. Secretary, we thank you. Thank you very much.

SMITH: Hi. Welcome to the Council on Foreign Relations. Ray Mabus is a University of Mississippi graduate, Harvard lawyer, and from 1982 to 1992, he was Mississippi's governor, serving two terms. He was just telling me a moment ago he got that job after serving as the state auditor for four years, in which he put a third of the Mississippi county officials into jail.

(LAUGHTER)

Good man to bring to Washington. After that, he was the U.S. ambassador to Saudi Arabia, where his huge political skills were even in higher demand, I dare say. He's also a former officer aboard a Navy light cruiser named the USS Little Rock, which probably helped endear him to Bill Clinton prior to that ambassadorial appointment.

One more thing worth mentioning. His home state is the site of a giant factory called Ingalls Shipbuilding on the banks of the Pascagoula River, where about 11,000 people earn more than $2 billion annually making and repairing U.S. surface vessels for the Navy.

With that, Mr. Mabus is going to—Secretary Mabus is going to make some opening remarks, and then we'll have a short discussion here. This conversation is all on-the-record. I hope you've all silenced your phones. I look forward to a good conversation and question period will come after the conversation.

MABUS: So thank you so much. I'm very glad to be with you.

What the Navy and Marine Corps uniquely bring to the country is presence, the ability to be not just in the right place at the right time, but the right place all the time, the ability to give our leaders options to do whatever the country requires, options from high-end combat to irregular warfare to humanitarian assistance and disaster relief to partnership-building.

The way I've tried to organize my thinking about how we provide that presence, how we give the commander-in-chief those options is by concentrating on four things that also all begin with P—people, platforms, power, and partnerships. And I want to talk about each one of those very briefly in reverse order.

No matter how big, no matter how capable, no one country can do everything. And we have to rely on partners worldwide. The more interoperable we are, the more we exercise together, the more we operate together, the better we will be when a crisis comes. There's a saying that you can surge people, you can surge equipment. What you cannot surge is trust. You have to have that trust.

And it's one of the reasons I travel so much. By the end of this week, I will have been 899,922 miles. But who's counting?

(LAUGHTER)

To 120 different countries and territories. And I do it for two reasons. One is to see sailors and Marines forward deployed, to visit with them where they are, to listen to their concerns, listen to what issues they have, and to talk to them about why they're there, why this presence is important.

But the second reason is to build those partnerships, to work with our friends and our neighbors and our allies around the world. And building those alliances, building those cooperative engagements is one of the key tenets of our national defense strategy and also it's almost a description of the United States Navy and Marine Corps.

Second is power. And by power, I mean energy, how we fuel our naval ships, aircraft, and bases. Fuel is and can be used as a weapon. You only have to look at headlines today to see how energy and oil and gas are being used as weapons. For that reason, I have a goal—and we're going to reach it—that by no later than 2020, at least half of all naval energy, afloat and ashore, will come from non-fossil fuel sources, because we simply do not want that weapon turned against us.

There are two reasons. One is the use of energy as a weapon, the use of energy as a crisis manipulator, but the second is just the global nature of oil and gas, because even if we could—and we probably will—be able to produce all the oil and gas we need internally, and even if we couldn't in the military in point of fact we'd go to the front of the line no matter what in times of national emergency, but the prices—because it is a global commodity—the prices are set worldwide.

And every time there's a crisis somewhere—pick a place, Libya, Syria, anywhere, traders in oil and gas put what is known as a security premium, usually about $10 a barrel. Every time the price of oil goes up $1 a barrel it costs the Navy and Marine Corps $30 million in additional operating costs.

So in the last few years, we've been presented with multi-billion-dollar bills, unbudgeted, bills for fuel price increases. We simply have to have a more stably priced, homegrown source of energy to power our fleet and to power our bases.

Third is platforms. Quantity has a quality all its own. On 9/11, 2001, the U.S. Navy had 316 ships. By 2008, after one of the great military buildups in American history, we were down to 278 ships, and the fleet was shrinking. We had 49,000 fewer sailors that we'd had seven years before.

In the five years before I became secretary, the Navy put 27 ships under contract, not enough to halt the slide in the size of the fleet and not enough to protect the industrial base that Jeff mentioned in places like Pascagoula.

I've been secretary for a little more than five years. In the first five years I've been secretary, we have put 70 ships under contract. We will grow the fleet to 309 ships by the end of this decade and to 314 ships by the beginning of the 2020s, and we will keep it there.

You have to have these platforms. You have to have these big gray hulls on the horizon to deter potential conflicts, to reassure allies, to do all the things that presence requires. You have to grow the fleet for us to simultaneously rebalance to the Pacific, but also not ignore other parts of the world.

"Fuel is and can be used as a weapon."

We are—we are doing that. And we're not just building one type of ship. In those 70 ships, we're building two DDGs, two destroyers a year, we're building two Virginia-class attack submarines a year, we're building to 33 amphibious ships, which is what the Marines need for their capabilities.

So this is a balanced, well-thought-out fleet. And we've done this just by putting in some pretty basic business principles. More competition. Stable designs. Mature technology. So we've quit building ships while we design them. If we come across a new gee-whiz technology, we wait until the next block of ships or aircraft to put them on. We try to be absolutely transparent in the number and types of vessels and aircraft that we will need, so that in return industry can do the infrastructure that's necessary, so in return the industry can do the job training that is necessary, and if we keep designs stable and we keep technology mature, every ship or every aircraft of the same class should cost less than the preceding one. Those costs should go down because there ought to be a learning curve.

And, finally, people. We have the finest force we've ever had and I think the finest naval force in history in the Navy and in the Marines. We push responsibility down further and faster than any organization you will ever see. The Marines have a concept called the strategic corporal, which says that if you're a noncommissioned officer in the Marines, a corporal, you ought to know not only your job, but you ought to know what your squad's job is, you ought to know what your organization's job is, you ought to know the history of where you are and why you are there and what your purpose is in being there.

We have put a good bit of stress on this force in the last few years. Our deployment times have gone up. They're getting longer. And they're getting more irregular. We're trying to meet some of that. We're trying to do it in several ways. One is, we've come up with something called the optimized fleet response plan, which is a Pentagon-ese way of saying we're going to try to be more regular in the way we deploy our ships and our people. And what it does is it takes a 36-month period and says, here's when you'll be in maintenance, here's when you'll be in training, here's when you'll deploy, and here's when you come back and will remain capable to be a surge ship. Now, the world gets a vote in all that. But at least it will set a notional framework of how to do this.

Next, we've established a program called 21st Century Sailor and Marine, which puts together all the programs that have been stovepiped before to deal with the help and the resilience of our force. So it puts things as disparate as diet and exercise and physical fitness with family programs for readiness. When a family member is deployed, how do the children back home—how do the spouse back home or if both spouses are deployed, how do we deal with that? What are available to—to our sailors and Marines?

To things like suicide prevention and sexual assault, we have tried to focus very precisely on things like sexual assault, to make sure that leadership and sailors and Marines understand this is a crime, this is an attack, this is an attack on a shipmate. If somebody was walking around taking random shots at people on one our bases, we'd do something about it. It's exactly the same thing, and we have to get this right or we will risk undoing the very hard and very good work of a lot of people.

And finally on people, one of the things that I am concerned about and that we are doing a lot of work on now is we simply don't have enough women in either the Navy or the Marine Corps. The Navy has about 18 percent; the Marine Corps has about 8 percent. And it's not simply getting more women in. It's because it makes us a better force. A more diverse force is a stronger force, and a force that defends a democracy ought to reflect that democracy.

It's one of the reasons that I brought NROTC back to Harvard, Yale, Princeton, and Columbia, and it's also the reason that we put an NROTC—you know, a Naval ROTC unit—at Rutgers and Arizona State, because they're some of the most diverse campuses that we have.

In the book, "The Wisdom of Crowds," it talks about how the more viewpoints you have, the more life experience you have, the more relevant, but different experiences that you have, your force becomes stronger. And we've certainly seen that since we've integrated the force in the late '40s, since we fully integrated women into the Navy, and the Marine Corps in the late '80, and we've seen it in our submarine forces, which I was privileged to make the decision to put women in our submarines four years ago.

So it's also the reason that I'm paying a lot of attention to things like uniforms. Women wear different uniforms. No other group does. If we ask another group to where a different uniform, we'd be in huge trouble. And that's why we're making uniforms actually meet that term, uniform—that's the whole purpose of it—so that when you look out, you don't see male Marines and female Marines or male sailors and female sailors. You see American sailors. You see American Marines. That's the purpose of doing this.

And we're also trying to be a lot more flexible, and we're coming up with a list of actions we can take and a list of actions that we're going to have to have Congress's help on, to be more flexible in how we manage people, how we—what a career looks like. We've got something now called a pilot career intermission program, where you can take up to three years off with no harm to your career and come back in. First person that did it was a woman who took time off to have a family, came back in, and on her first promotion board, she was promoted to captain and given major command.

"If somebody was walking around taking random shots at people on one our bases, we'd do something about it. It's exactly the same thing, and we have to get this right."

But even with that, people don't trust us. Partly they don't trust us because it's got the word "pilot" in front of it. They don't think that it's going to be there. They don't think that, well, if I take this time off, are they really serious that it's not going to hurt me?

The example I use, the commandant of the Marine Corps took more than two years off from the Marine Corps mid-career. He went and flew airplanes for an airline. He did pretty well when he came back. But he even says that he was at a great disadvantage because his peers during the time he had been gone had done two deployments. And we penalized people who come out of school, whether at the Naval Academy or ROTC, and do incredibly well academically. So if you get a Rhodes scholarship coming out of one of these places and you take two years and go to England, you're going to be behind your peers when you show back up. You're going to—they will already have their wings as pilots. They will already have their dolphins as submariners. They will already have their surface warfare pin.

And so we're penalizing some of our best. And we simply got to figure out ways that we can keep not only women, because we keep women at a lower percentage than anybody else, but that we keep all these highly skilled, highly talented people in by making these military careers not less rigorous—because if you join the Navy and Marine, you're going to sea, you're going to deploy—but make them more flexible, make them easier to balance family and work, and make them so that we can keep some of these.

I will close by saying that I will make an argument—and I think it's a pretty good one—that the world economy is doing as well as it is because of navies, and primarily because of the United States Navy. Ninety-five percent of all commerce, all global commerce travels by water. More than 90 percent of all data, whether telecommunications or data that runs our financial institutions, goes under the sea. And because the American Navy and the American Marine Corps have kept those sea lanes open for 70 years, have kept it open for everybody, not just ships flying our flag, but everybody engaged in peaceful commerce, the global economy, despite its ups and downs, is running as smoothly as it is because of that presence, and that's what we have to maintain, that forward presence to make sure we are there, to make sure that we are where we need to be when we need to be there.

Thank you.

(APPLAUSE)

SMITH: And we're just going to chat for a bit. And I should say, to get my conflicts out of the way at the beginning, I'm probably predisposed to like the Navy and its leaders. My father was briefly a gunnery officer about a light missile cruiser like the Little Rock in the original Asia Pacific pivot a few years back. And I spent my toddlerhood pushing little gray ships around my bedroom floor.

Over the years, as a reporter at the Washington Post, I found the Navy's public affairs shop were honest and responsive than those of the other services. I noticed a report last week that among colleges with the highest starting salaries for graduates, the U.S. Naval Academy was right at the top. It's hard, dangerous and expensive work they do. Two F-18s crashed last week into the Pacific, and it cost them about $61 million apiece. No one who's watched the movie—no one who's watched the movie "Captain Phillips" or read into the details of the Osama bin Laden takedown can feel anything but pride about the Navy and its personnel.

All this said, I can't escape the conclusion that in recent years the Navy's headed down some bad pathways, particularly in its procurement of boats and services. We've all read about the Glenn Marine Group purchasing scandal and everything the Navy has done to put it behind it.

But criticism persists that the Navy is having enormous trouble making smart decisions about its needs for the future, exemplified by the littoral combat ship fleet that the Navy leaders still support, even though Secretary of Defense Hagel has noticeably cooled on it.

When the USS Freedom was immobilized in the South China Sea for a while last year, it was to many an embarrassing symbol of how the Navy is not as well prepared for the tasks of the future as it once was. So I'd just like to collect your comment on that.

MABUS: Other than that, Mrs. Lincoln?

(LAUGHTER)

Well, let me take those in order, Glenn Defense Marine. I said at the time I would rather get some bad headlines than let bad people get away. The only reason you or anyone else knows about Glenn Defense Marine is because we conduct—because they went across some tripwires we had set up in 2010. It raised questions about their activities.

We instituted an investigation with NCIS that went on for three years with no leaks. And during the course of that investigation, we found out that an NCIS agent was helping and was funneling information to Glenn Defense Marine...

SMITH: About the investigation.

MABUS: About the investigation. We fooled him. We had no leaks. And we were able to have the head of Glenn Defense Marine come to the U.S. for a meeting, where he was arrested. And alone among the services, when we relieve people, when we do investigations, we announce it. We announced the result of all our courts martial that result in—we put the names in if they result in guilty pleas or guilty findings. We don't put the names in if they're acquittals, but we do say, "Here's what the charge was, and here was the finding."

So actually I think GDMA for all the bad headlines was an example of how we do catch bad actors. You can't stop everybody. You can have all the ethics courses and lectures in the world, but if you don't know it's wrong to steal, if you don't know it's wrong to take a bribe, you missed something at home. And probably those ethics lectures aren't going to help.

So you set up the ethics stuff and try to make sure that you do that, but on the other hand, you set up stuff to catch people, because it's always a race between people who are trying to figure out a way around the law and the rules and those that are trying to enforce it. So I think we did a pretty good job enforcing it there.

SMITH: Maybe you could talk a little bit about the LCS. You talked about the—your new procurement strategy is having more competition, stable design, and more mature technology. The LCS is the counterpoint, I think, in the view...

MABUS: Actually, I think it's a good example of those things.

SMITH: All right.

MABUS: And I'll give you a whole bunch of stuff here. When I took office, we had—we've got two versions, one made in Austal, one made by Austal in Mobile and made by Lockheed in Marinette Shipbuilding in Marinette, Wisconsin.

When I took office, we had one version of each in the water, one version of each being built, and they were costing north of $750 million apiece. Now, they were first of their class. They were experimental ships when they were built. But the Congress had been told they were going to cost $220 million. There's a little gap between $750 million and $220 million.

One of my first acts was to bid out more. And when the bids came in, they were even higher than the ships that were being built. So I made the decision that even though we wanted both versions, they brought different strengths that we couldn't afford it. So we pulled the RFP, we put a different one out, and we said we're going to build 10 ships over 5 years to the winner of the competition. And those two yards are competing against each other. And we're going to base it mainly on price.

So over the—and then you're going to give a technical package and we're going to bid that out to a second shipyard to keep competition in, and we're going to give that shipyard nine ships. So over the course of the year, the bids came down about 40 percent. I still don't know who won. Went back to Congress and said, we'd like to buy both versions. Congress said OK. We bought 20 ships instead of 19 and we saved $3 billion on that.

The ships coming off the line in this multi-year contract, the last ones, the hulls cost about $350 million. So we have—we have driven that cost down. And if you add the mission packages to the cost of the hull, the cost that Congress was told, $220 million was the hull, we thought the mission packages then in 2002 were going to be far more expensive. They're costing about the same, a little less than $500 million average price, as Congress was told then without accounting for inflation. So I think that's not bad.

Second, we deployed, as you pointed out, Freedom, and the first ship of its class ever built. We deployed her early. We sent her to Singapore. And she did have some mechanical issues. But what nobody reported on, she was available for service at higher than average rate of the other ships in the Pacific fleet. Ships have mechanical problems. So the Freedom was available to go when they needed to.

Third, we sent Independence—LCS 2—to RIMPAC, Rim of the Pacific, this year. We gave them two months' notice. They were testing the countermine package. We told them to change it out and put the counter-surface package on. They did it in 96 hours, which is what we'd always said we could do, but we'd never tried it under real circumstances.

They go to Hawaii, and they get there with a third of their fuel left at higher speeds than anyone else transited. And everybody thought it was going to burn way more fuel than that. And it participated in a gunfire exercise that, did visit board search and seizure exercises with our special forces, it played the aggressor ship against four other ships, two U.S., two non-U.S, and they couldn't find it for a long time. Their participation in RIMPAC was highly successful.

Now—and the fleet—the fleet loves the LCS. What the secretary of defense tasked me to do back in February was to take a look at the program, to look at lethality, to look at survivability, to—but to do so taking into account budget and schedule. And the options were to come out with—keep building the LCS exactly the way we're building it, build a modified LCS, or build a new kind of ship, either from an existing design or clean sheet of paper.

We have not briefed the secretary of defense yet on the results of that, but the one thing I will say, we set up a thing called the small surface combatant task force, who looked at every option possible in a very rigorous way. When we make our recommendation, I don't think there can be any doubt about the process, about what we need in terms of these ships.

We have a demonstrated need for 52 small surface combatants, regardless of what they are. We're going to build 32 of the LCS, this variety. So the question is, what do the next 20 look like?

And the last thing I'll say is, we do this for every ship. We're about to start building our fourth flight of destroyers. Same names, DDG 51, but fourth flight. And as one of our admirals told me, he said that the destroyer today, he commanded a flight one. He says there's no comparison in those ships.

We can't test naval ships the way you test aircraft, because they're just too expensive. They just take too long to build, so you can't build test platforms. And so what you do is as you build them, you send them out in operation, you see what they need, and you make changes accordingly.

SMITH: So one of the biggest questions about the LCS has been the survivability, and it speaks to kind of a broader survivability question I want to ask you. A second and related complaint, beyond this question about whether the Navy's as well prepared for the tasks of the future as it once was, is that the Navy's having trouble dealing with new ship-killing technologies, like the Chinese DF-21, which are cheaper, more widespread, and have a larger footprint than they used to.

Are you confident that surface navies are going to be able to fend off attacks from smaller countries or from, you know, non-national sources 35 years from now as easily as they can now, since that's the shipbuilding window that you have to plan in?

MABUS: I think a short answer is yes, if we keep looking at those evolving threats, if we keep our technological edge, which—we have two edges. One is technological. We've always had the greatest technology. And two is people.

But we have to keep the research and development, we have to keep the science and technology going. We have to make sure that we don't fall behind in things like unmanned systems. And you're seeing this in warfare everywhere, this asymmetrical warfare. We saw it in Iraq. You saw it in Afghanistan. And you're seeing it on the high seas with the fast boats. So that's the kind of warfare that you're going to have to fight today.

But you don't know what that warfare is going to be. You don't have a clue. I mean, we do a thing called a Quadrennial Defense Review. By its very name, it's every four years. It's right after a presidential election. And a lot of smart people work on it, and they're very well-thought-out reports.

Now, if you'd have done one in '89 right before the wall came down, you'd have been 100 percent wrong about the threats we were going to face. If you'd have done one September 10, 2001, you'd have been about 90 percent wrong about the threats you're going to face. If you'd have done one—which we did last year—in terms of the threats we're going to face right now, you would have been at least as wrong as right.

So our job is to make sure that that technology gets developed. Our job is to make sure that our platforms are flexible so that they can take on whatever threats are coming in, to make sure that our training is flexible, make sure that we don't have just doctrinaire people doing this, that we...

SMITH: Can I interrupt?

MABUS: ... have people who can make decisions.

SMITH: What did you discover in the last year that—that made that report only 50 percent correct?

MABUS: Well, I mean, I was talking about the headlines from the Ukraine, from Iraq.

SMITH: Not a naval threat.

MABUS: No. I mean, we—again, it's always going to be a race. It's always going to be a race between offense and defense, because weapons that are designed to...

(CROSSTALK)

MABUS: ... weapons that are designed to not to.

SMITH: This is the challenge...

MABUS: But I'd rather be in our place than in anybody else's place right now.

SMITH: The challenge in Washington, though, because you're asking lawmakers to pony up a lot of money for surface ships with this kind of uncertainty about the survivability of surface ships against this wave of new threats that are coming, that are cheap, that are proliferating.

MABUS: Well, I think—I think, frankly, that's always been the case, because you were asking lawmakers to pony up a lot of money to counter the Soviets and the threats that they posed, which were just as equally—the descriptions were equally fearsome and concerning, and on back through history.

But, you know, survivability has got a lot of different aspects to it. One is, how likely are you to be hit in terms of stealth or speed or maneuverability? Second is, what do you mean by survivability? Is it getting hit and being able to get out with the crew and go back and be repaired? Or is it to be hit and keep fighting? Because we have different degrees of survivability that's written into our survivability standards.

But we also don't send ships out by themselves much, particularly not in war. You know, and I think that's one of the issues with LCS. You wouldn't have just an LCS out there by itself. It's going to be part of a strike group. And part of the things it did at RIMPAC was this LCS did the plane guard coordination for all the ships around the carrier, first time it had ever been done. They did a great job.

SMITH: Let me ask you one other quick budget question, and then we'll open it up to the audience. You and other Navy leaders have told Congress this year there isn't enough money in the budget to meet your two key objectives, recapitalizing the surface fleet and building as many as 12 new nuclear-armed submarines over the next two decades.

So the Navy has essentially been asking for its own special overseas contingency operations account, which would fund just submarines. Now, when Jim Cartwright, Ash Carter and Bob Gates were running things, they said Navy leaders must have been smoking something to put forward a proposal like that.

But those guys are gone, and now it looks like something like a national sea-based deterrent fund might pass the Congress either late this year or maybe next year. And I'm wondering if this sends a bad precedent. I mean, what's to stop the Air Force, for example, from creating a new national air base deterrent fund for its new strategic bomber program, which is probably going to be unaffordable, alongside the trillion-dollar F-35? And also is there a way around this? Why can't the Navy build just eight new submarines with more missiles on each one? Can you bring us up to date on where this stands?

MABUS: Yes, and you're absolutely right that I in testimony, the CNO in testimony have said that, that you've got to have this national conversation, you've got to have a debate over how we pay for this, because these subs start being built in 2021. The first one will become operational in 2028, but we are working on them now. We're doing the engineering now. We're doing the R&D now. And it's a multi-billion-dollar bill even today to do this.

We are building fewer than the Ohio-class, 14 Ohio-class, we're planning to build 12 of its replacement. The reason we can build fewer is the Ohio-class had to come in and be refueled midlife. These are life of the hull reactors.

But the main reason that we said you've got to have this debate, you've got to have a conversation about this is that it will take half of our normal shipbuilding budget, every year for a dozen years, to build these...

SMITH: That's the submarines.

MABUS: Ballistic missile submarines. It will—it has the potential to gut the rest of our shipbuilding programs or something else, because I sort of reject the notion that the only way you pay for a ship is to take it out of another ship, but you've got to take it from somewhere.

And this is a national program. This is a—this is a national strategic deterrence. I don't think anybody wants our Navy to quit building attack submarines or to build many fewer of them or to quit building our surface fleet or to build many fewer of them.

And so either—one of two things has to happen. Either you're going to have to view it as a national program or you're just going to have to plus up Navy shipbuilding funds if you want to—if you want to do both missions. That's the hard math of it. And we're there today, because we are spending several billion dollars over the next five years before we even start building these things in 2021.

SMITH: Let me leave it there. You may want to follow up on that, but I'll open it up to the audience now and bring some questions in. Yes, please, right here, please.

QUESTION: Thank you very much for your talk today.

SMITH: Please wait until the microphone comes over.

QUESTION: Thanks very much for your talk today.

SMITH: And give your name and affiliation, also.

QUESTION: Henry Nuzum, SEACOR Holdings. I wanted to build a bit on the DF-21 question. I'm interested in your—a bit more detail on your reflections on the build-up of the Chinese conventional ballistic missile force, and particular in three areas, the impact on the balance of forces in the Pacific, the impact on our acquisition, not only systems, but vessels and fixed assets, and, finally, does the U.S. need a similar swift deep strike capability?

MABUS: Well, in terms of our assets to the Pacific, we're moving as part of the rebalance more assets to the Pacific. Now, we're doing this in the context of the fleet's growing, so we're going to have—we've got now 57 percent, 58 percent of our fleet in the Pacific. We'll have 60 percent by 2020. It's our most modern platforms that are going there. We're going to put another amphibious ready group, for example, there. We're going to put more surface ships in Japan forward deployed. We're going to have four LCS's forward deployed in Singapore, where they'll remain over an extended period of time, and we'll have the crews fall in on them.

And so our job in terms of maintaining presence and freedom of the seas and freedom of navigation is to be everywhere in the Western Pacific. So that's our acquisition strategy to do that.

The CNO has talked about the threats that particularly our carriers face and the—what he called the kill chain, and that what we have to do is break that kill chain at some point. The kill chain has go to work 100 percent of the time to get us. And naval vessels are by their nature—they're not going to be in the same place when you shoot that when it gets there.

And we're clearly looking at both offensive and defensive technologies. And I think that's all I'm comfortable saying about what we're doing.

SMITH: Take a question from the front row here, please.

QUESTION: Hi. Thank you, Mr. Secretary. Alan Topol from Covington & Burling. Question's this. Could you please comment on the Chinese naval expansion, how their trajectory for shipbuilding is increasing, and how it compares with ours, and at what point in the future you see some kind of a parity between the two?

MABUS: They are clearly expanding their navy with modern platforms. They're building modern surface ships. They're building model both nuclear and non-nuclear submarines. They're engaging in more complex exercises, as we go forward.

They have a very large fleet right now, but a lot of the ships are old—they're not very capable. The new ones that they're building seem to be pretty capable, pretty capable ships. What we want is for them to accept the responsibilities of a nation their size and with their capabilities, and as those capabilities grow, to be a part of maintaining freedom of navigation, to be a part of freedom of the seas, to be a part of humanitarian assistance and disaster relief.

I went to China in December of '12 as secretary. And the complaint then was what the complaint always is. You've got to stop these reconnaissance flights. You've got to stop your intelligence gathering by either air or sea. And my response was, well, you know, you obviously think that these are good things, because the last RIMPAC in 2012, you sent an intelligence ship to shadow us and to gather intel. And our response was to invite you to the next one, not to try to keep you out, but to invite you.

And that's what—that's the—that's our preferred path, is to engage them, to make sure that they know how we operate and we know how they operate, which will lower the chance of misunderstanding, to get a code of conduct for the area, so that you know, you don't have these close calls. You don't have things that could escalate out of control.

And we have also been very clear that while we don't take a national position on territorial disputes, that we do honor our treaty commitments and that we are absolutely opposed to anyone trying to get those territorial—to solve those territorial disputes by either force or by intimidation, and that we plan to be a presence in the Western Pacific for at least as long, again, as we have been before.

SMITH: I'll take a question over here, please.

QUESTION: I'm Ruth Greenspan Bell from the Woodrow Wilson International Center for Scholars. I don't know if this is working. Can you talk a little bit about how you connect your construction objectives and your efficiency objectives? You edged into this a little bit with one of the discussions, but I'm curious, because, obviously, once you have infrastructure in place, it's that much harder to make it efficient, you know, to kind of thing from the beginning of the process, and...

MABUS: Well, the way—I'll give you two quick examples. The way we've tried to do it on both ships and aircraft is to just put very basic business practices, try to compete as much as we can, do firm fixed-price contracts, do multi-years when you can, be transparent as to what's coming for industry.

But drive hard bargains. Drive very hard bargains. I mean, my father was maybe the cheapest human that's ever lived. And he thought it was a compliment to be called cheap.

SMITH: He ran a hardware store.

MABUS: He did. He was born in 1901, so he lived through the depression. He saved $0.70 out of every dollar he ever made. And he never borrowed a penny of money. But I'm his son. And I'm cheap. And I think part of my responsibility is to drive a hard bargain on behalf of taxpayers.

"That's our preferred path, is to engage [China], to make sure that they know how we operate and we know how they operate, which will lower the chance of misunderstanding, to get a code of conduct for the area, so that you know, you don't have these close calls."

Now, the example I was going to give is we've got two yards, Pascagoula in Mississippi, in my home state, largest single employer, and Bath, Maine, largest single employer in Maine, which build destroyers. So there's never really been competition there.

And so—because you want both of them open. You want to have two yards. So instead of—they were just taking them as allocations. Everybody get—you know, each one get one, and the prices were just going up. So instead of bidding out two ships, we bid out three, and we said the low bid gets the third ship. Oh, and by the way, the difference in the high bid and the low bid comes out of the high bid's profit.

One shipyard just crushed the other one in that initial competition, got the second ship. The other one really didn't make much money. The next year, we bid out nine ships as part of a multi-year. Did the same thing, low bid gets the extra ship. The fee comes—the difference in the high bid and the low bid comes out of the high bid's fee. The other shipyard crushed, crushed them.

So—and, finally, it's easy to cut platforms, ships, aircraft, things like that. They're visible. You know how much they cost, this kind of thing. It's way harder to cut stuff like contracts for personal services.

QUESTION: I should have been clearer. On energy efficiency.

MABUS: Oh, energy efficiency. I'm sorry. Energy efficiency. We're doing two things on energy. One is changing the types of energy we use, so we're going to on bases to wind, solar, geothermal, hydrothermal. At sea, we're going to biofuels. We've already certified all our aircraft, all our ships, and it's becoming the new normal. We're just buying biofuels now. It's being put in the normal supply chain. Aircraft don't know the difference; ships don't know the difference. It's got to be a drop in fuel.

On the efficiency side, though, where we're doing a lot and an equal amount of work onboard ships, we're doing things like changing out the lights to LEDs. That saves 2 percent or 3 percent of the entire energy the ship uses. And it's brighter. And you don't have to change them as often.

We're putting stern flaps on. We're putting—we're doing voyage planning, which instead of just telling a commanding officer go from San Diego to Pearl, you know, follow the currents, follow the wind, basically going back a couple of hundred years in terms of how you plan voyages.

On shore, we're doing energy savings contracts, which are if you'll come up with savings, if builders or contractors will come up with savings for them, we'll share them with them, but they have to tell us how much they're going to be and we'll tell them what percentage they get to keep out of that.

SMITH: Your critics, including Senator Inhofe, who happens to be from an oil-producing state, just by coincidence, would say that you're investing foolishly in technologies that won't be economically sound for a long time. So my question is, you know, why do you think it's hard for some lawmakers who've been critics of this program, the Navy's participation in it in particular, other that these financial ties, for lawmakers to see the national security implications of dependence on fossil fuels? It's still an amazingly hard sell in Washington, and I'm curious to know why you think that's so.

MABUS: Well, first, in 2012, a provision made it through Senate Armed Services because a couple of folks were gone or just weren't there when—they were doing other important things, but they weren't there when the vote came...

SMITH: It was a well-timed vote.

MABUS: ... that would have basically shut down particularly the biofuel part of this. When it came up on the floor of the Senate, we got 62 votes to remove that. It was the first amendment offered. It was the first one taken up. And out of the 62, 12 were Republicans. So it's not that hard a sell, I think.

The second thing, in terms of Senator Inhofe—and I've told him this—when we bought the biofuels, it was an Oklahoma company that we—and the last thing I'll say is that—as you've pointed out, I was ambassador to Saudi Arabia. The old Saudi oil minister, Zaki Yamani, very famously said, "The Stone Age didn't end because we ran out of stones. It ended because we figured out something better." I think the same thing's going to be true here.

SMITH: We'll take just a few more questions. We're kind of running short on questions, so let me take one more now, and then I'll collect maybe—if you give a short reply, I'll collect one or two more after that. Please, next, yes.

MABUS: I can't promise a short...

QUESTION: Andrew Shapiro, Beacon Global Strategies. Navy leaders have testified that force structure doesn't need to increase, despite the additional ships, because fewer sailors are needed on more modern ships. Have you—what is the current Navy thinking about the potential for unmanned ships? And is there ever a point where you could see unmanned ships playing a significant role in the Navy?

MABUS: Well, force structure is going to stay pretty constant. Even though we're using fewer people, we're getting more ships, so the Navy is going to stay pretty constant over the next at least five years.

Second, we're the only service that does unmanned in air, surface and sub-surface. I think that in all three of those realms, unmanned are going to become more and more important now. How that comes about, what they look like, what types of things—but we're already testing unmanned surface things and unmanned sub-surface and obviously unmanned air.

And so I think this is one of those waves of the future that you cannot afford technologically to fall behind on.

SMITH: Let me take—if you have your hand up, we'll take a couple of questions all at once. Please. Mitzi?

QUESTION: I'm Mitzi Wertheim with the Naval Postgraduate School. I'm going to ask a very different question. I'm going to ask about time and efficiency of the part of the people who work for the Navy. The Internet now takes up a lot of our time. I've looked at so many of the studies, and I come to this as a taxpayer, right? I look at all the studies that we do, and generally they have sort of a summary in the beginning, most of it is about the technology, and then sort of a conclusion at the end.

SMITH: Can you make this a quick question?

QUESTION: Yeah, what I want is, I want to get the beginning of these studies to tell, what were the new learnings? When I came to the Navy 37 years ago, all of flag officers had a writer who would take these 70- or 80-page reports and get it down to something that the leadership could read without having to spend hours. And this is all about a different way of learning.

And the National Intelligence Council has done this in a brilliant way, so it seems to me we ought to be doing that, as well.

SMITH: Hang on one second. Let me get...

MABUS: OK.

QUESTION: How do we make it happen?

SMITH: And can you ask a question, please, also?

QUESTION: OK, I'll just stay seated. Welcome. Thank you very much. That was an excellent presentation. I'd like to talk just a moment about...

(CROSSTALK)

QUESTION: I'd like you to talk a moment ago—you are also a very fine diplomat—you've worked very hard on building and maintaining alliances. You've got naval air now flying against a force in the Middle East that's being actively supported, in effect, by a very important ally, Turkey, by, first of all, facilitating the arrival of NATO jihadis into Syria, and secondly by—we learned this weekend—selling ISIL's oil.

This is a relationship that obviously needs a lot more work right now and could impact possibly on what your forces are doing in the region. Could you discuss that in this forum, as much as you can?

SMITH: Any other questions to bring up? Yeah, well, let's take one more, and then you can answer both these, and then we'll call it quits.

QUESTION: My name is Isa Broli (ph). I'm the charge d'affaires of Djibouti. The Navy is in Djibouti, and they did a good job in piracy in Somalia. The question is that—about the new renewable energy, is there any program to help like Djibouti for the transfer of technology?

MABUS: OK, very quickly, I agree with you. I would take it one step further. I don't think we need quite as many studies. I think we need a lot more acts. And I'd also like those studies to be written in English, because some of them, I'm unsure what the words are or what the language is.

(LAUGHTER)

And we're working on that, working on it very hard. And flag officers still have those flag writers that do that.

I'll go back to my—what I said in the very beginning, Frances, and that is, our—my job and the Navy's job is to give the president options. And the great advantage that naval forces give is that we don't take up anybody else's soil. We don't have to have support by anybody else. We can go and we bring everything we need. Only the Marines say we take our gun with us, and we can stay for a very, very long time in international waters.

So you—you've got to build these partnerships. You've got to build these things. But from an operational standpoint, you impinge on nobody's sovereign territory. That decision never has to be made. You're taking off from American soil, and you're coming back to American territory.

And I've just been in Djibouti for my second visit there. And it's one of the things I talked about in Djibouti, because the sun does shine in Djibouti and the wind does blow in Djibouti. And it—one of the things I've asked my folks in the Navy is, what can we do on alternative energy that will not only give us the power we need on our base, but also help employ Djiboutians on that base and perhaps create a new energy economy in Djibouti.

SMITH: With that, I'm going to conclude the session and say thank you very much for all your questions. Mr. Secretary, we thank you. Thank you very much.

Christine Fair, associate professor at Georgetown University’s Edmund A. Walsh School of Foreign Service and expert on South Asian political and military affairs, joins James M. Lindsay to discuss Pakistan’s July 25 election and incoming Prime Minister Imran Khan.